Tax Dictionary – Failure to Pay Penalty

IRS Definition

The failure to pay penalty is one-half of one percent for each month, or part of a month, up to a maximum of 25% of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full. The one-half of one percent rate increases to one percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy property. If you file your return by its due date and request an installment agreement, the one-half of one percent rate decreases to one-quarter of one percent for any month in which an installment agreement is in effect.

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If you don’t pay all the taxes you owe on your tax return by the due date, the IRS will charge you a failure to pay penalty.

Remember: Even if you get an extension to file your return, it does not extend the time you have to pay.

You can reduce the failure to pay penalty if you set up an IRS payment plan, called an installment agreement, to pay the taxes. The penalty goes down to 0.25% per month for as long as the installment agreement is in effect.

The IRS may remove (abate) this penalty if you can show that you had reasonable cause for not paying your taxes on time, or if you have a prior history of filing and paying your taxes on time.

Note: If you owe failure to file and failure to pay penalties, the combined penalty rate is 5% per month, up to a maximum of 47.5% of the tax you owe.

Learn how to address IRS penalties.

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